During the past several years, statistics from national samples of high school youth indicate alarming increases in rates of substance use. The primary aims of the proposed study are to: 1) experimentally compare the effectiveness of family-based treatment, Multidimensional Family Therapy (MDFT), with adolescent residential treatment, Adolescent Treatment Program (ATP), in ameliorating drug use and symptoms of co-morbidity among dually diagnosed adolescents; 2) identify the mechanisms by which each treatment achieves its effects; and 3) examine the cost effectiveness and cost off-set of each treatment. ATP is a multifaceted residential treatment based on a social learning approach. MDFT is a multidimensional and intensive, in-home family-based treatment that targets individual, familial, peer, and community influences on drug use. An experimental design is achieved by randomly assigning 200 dually diagnosed adolescents to 2 treatments (MDFT, ATP). Comprehensive assessments of outcome (drug abuse, conduct problems/delinquency, and psychosocial functioning) and change mechanisms (parenting, alliance, 12 step, and adolescent skills) are obtained at 6 time points (intake; 2, 4, 12, 18 months post-intake and termination). Measures of cost effectiveness and cost off-set are included as well as careful procedures for treatment integrity and its measurement. Analyses will include Hierarchical Linear Modeling, Structural Equation Modeling, Multiple Regression, and MANOVA, and utilize latent factor scores representing multiple perspectives on multiple traits.